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The question of when to recruit a COO (head of operations, whatever the title is) depends to a great deal on what you as a CEO need to focus on.

The Strategic Importance of Operations in Start-ups

This is probably the most strategic recruiting you will do during your tenure at the company, so, no pressure. It informs just about everything you will get to focus on for a long time. Really, there is no pressure at all.

For the sake of this article I will assume two things;

The company’s product is (mostly) software based. The outline here applies regardless of the business model. I.e. SaaS, Term licenses, Perpetual licenses.

You, the CEO, are a Products person. I.e. the reason why you founded the company was so that you change the world by developing that software solution that has been keeping you up at nights. You know, the only thing you are ever able to talk about under EVERY circumstance, with EVERYONE. (I’m sure you relate).

You haven’t slept properly in months, because you’ve been so excited about how you might build out that product. You’ve met with a lot of your peers, and people with more experience than you most of whom have given you positive feedback and constructive criticism on your plans. You’ve come up with some funding and you’ve recruited a small team of engineers to help you develop the solution.

In essence, you are Richard Hendricks of Silicon Valley fame, but hell bent on not making the same idiotic mistakes as he does on a regular basis.

Congratulations.

The Lighthouse at Flatey at Skjalfandafloa, Iceland

Your role

You’re a products guy/gal. Up until the time when you launch the product, the most important things that you as a CEO can do are:

Defining and over-communicating the vision

Building the company’s culture

Managing relationship with your source of funds (investors)

Creating a magical product that will change the world

Why these things? Because the first two things are what will attract the best talent. Without recruiting superior engineering/creative team you will not create a world-changing product. The third item means you will have the wherewithal to develop the product and absolutely everything depends on getting the fourth item right. Without that, the skies will fall and the world will end.

And that’s all she wrote, no?

Not so.

So, if you are taking care of the 4 items above. What would a COO be doing meanwhile? It isn’t necessarily obvious, especially not compared to the person you will hire as head of marketing, finance, or the CTO you will probably already have hired.

Weather vane at Flatey at Skjalfandafloi, Iceland

The COO’s role

The COO’s role, is probably the most varied in all organizational design. But a good COO is well versed in all aspects of the business.

They “get” the technology, because operational decisions have to be made that are to a large extent based on technology. Everything from selecting a hosting partner to planning support management

They have a firm grasp of finance and can do the necessary managerial accounting/reporting

They may develop the go-to-market side of the company while the product is under development

Handle the creation of marketing strategies, segmentation, creation of collateral and preparation of marketing communication

Recruiting the sales team

Ensure enablement happens

Develop channel partners

They work on recruiting and retaining the best Talent the organization can have.

Select and modify the Systems, Infrastructure and Ways of working, that you will need to get off the ground and scale with a growing customer base.

If, and when, you start Series A and B (and subsequent) rounds of finance your COO is the person that steps into most of your responsibilities so that you can focus entirely on finding the correct VCs to work with (or any VCs so that the company survives). Because that, in itself, will become a full-time job for you.

In short, they set up the rest of the organization and prepare it for running the product once you are ready to launch. And no less importantly, make sure that you can handle the growth when you have successfully launched.

So who is it?

Someone who complements your strengths. You (probably) know what you are good at, where you excel. You also (hopefully) know what needs to get done in order to successfully sell your product and grow the company. Make sure your COO can carry the load where you fall short.

It goes without saying, so let’s say it anyway. There needs to be trust, full and absolute, between the two of you. Any-, and everything needs to be on the table.

This kind of trust almost never happens unless you gel on a personal level. You will be constantly communicating, taking phone calls at inconvenient times. You better enjoy each others company. But u u uhh… before you think **Airport Test** let me stop you right there. There has to be more than passing the airport test.

All this communication means you both need to be able to “tell-all” in a frank manner. Any communication issues must be dealt with immediately so that the trust remains.

You have to be able to present a united front and speak in the same language to employees, customers and investors alike. I like to think of the role as “the other half” or “the partner”.

Arctic Terns in Iceland

Post launch

Now that you’ve launched. Get ready for your role to change. You’re not going to get to focus so much on the product. Sorry. I know you love it. But now you need to focus on the corporate strategy, where to take the company and expand the stakeholder relationship to include customers as well.

You will of course also recruit heads of Marketing, Finance, Sales, HR, etc. But, the diverse experience your COO has means that (s)he can wear many hats and step into different roles as needed while the company is getting off the ground.
They understand what is important to achieve within each function and drive for measuring performance towards the organization’s goals.

P.s. if you, the CEO, are NOT a products person and would rather have someone else build the product, manage the Go-to-market, handle the financials and so on. Feel free to ignore the rationale above. Recruit a COO because it will make your life easier.

Just make sure you’re not adding another version of yourself (Mini-Me went out of fashion with the second Austin Powers movie).

The underlying assumption is that a company’s purpose for being is to create and return profits to its owners. Therefore, assuming this strategy is returning profits, anything that supports the company’s strategy should be endorsed for the benefits of shareholders. But in order to understand this underlying assumption there are at least three things that need to be looked into;

the purpose of business and how to measure business results

the ties of strategy to business results, and

how to tie the strategic use of CSR to business performance.

There are four basic methods of creating value;

increasing price,

increasing quantity,

reducing costs, or lastly

by reducing time used.

If, and only if, any one or a combination of the above is the outcome of any commitment of resources; value is created. Strategy should generate value because value leads to a wealthier society. Wealthy societies are in everyone’s interest. Hence, strategically used CSR should improve the quality of life for society. Bearing this in mind there are obvious problems one faces when analyzing the importance of such intangible things like the effect of Corporate Social Responsibility (CSR) or Human Resource Management (HRM). These problems are mostly measurement problems (Kearns). Friedman wrote an often cited article that interestingly enough addresses social responsibilities of businesses:

The discussions of the “social responsibili­ties of business” are notable for their analytical looseness and lack of rigor. What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

There has been much criticism on Friedman’s view, but one viewpoint is that there may actually be a way of tying CSR to business performance.

So if it is accepted that the businesses main area of responsibility is to provide value for shareholders, it goes without saying that there have to be some means of creating said value, these are the very foundation of the company. Kearns says that the organization might do well by having a vision of what the future will look like and a mission of where to go in the future, it then boils down to the business strategy to dictate how the company will get there.

“What business strategy is all about – what distinguishes it from all other kinds of business planning – is, in a word, competitive advantage. Without competitors there would be no need for a strategy” says Ohmae, he goes on to say “Corporate strategy thus implies an attempt to alter a company’s strength relative to that of its competitors in the most efficient way”.

Porter and Kramer put forward a pretty persuasive argument that strategic CSR is the way to go. They point out how companies have, in the past, found themselves a midst something that seems to be consumer outrage where they are, rightfully or not, being held accountable for social issues, and some cases even being targeted for seemingly little fault to further activist’s causes. In their article Porter and Kramer suggest that the most important aspect of adhering to strategic CSR is to balance the resources put into such projects against the value they create. This they claim reduces the risk of changes in the external or internal environment of the company shaking the foundation of the projects.

In their article Hine and Preuss bring together major arguments of the various groups, among others they discuss the social responsibilities of the corporation towards its stakeholders. There among other things they point out that in order for a corporation to accept any social responsibilities they need to become ‘morale’ agents but that in it self may be difficult as the company’s shareholders hire a management team to act as the company’s conscience. But what is very interesting in the article is the claim that while there has been much discussion about CSR in the past three decades, there is little empirical evidence showing the positive financial effect that CSR can potentially have on companies who actively pursue CSR projects. This, in fact, begs the question of whether the implementation of the CSR initiatives has left something lacking or whether the fundamental idea behind CSR simply is not viable. At least it seems clear that CSR for CSR’s sake is not a viable option and that using CSR to prevent detriment to reputation, a form of risk management if you will, may have mixed results. On the one hand companies may gain some goodwill, but on the other, a company of good financial standing may become a “target” for activist groups.

It is clear according to Hine & Preuss that CSR in and of it self is not the answer to the question of whether CSR is an attainable form of business ethics.

Porter and Kramer say that “broadly speaking the proponents of CSR have used four arguments to make their case: moral obligation, sustainability, license to operate, and reputation”. The moral obligation argument contradicts Friedman’s view as set forth above and seems a little normative and so does the license to operate argument. The reputation argument can with a clear set of measurements be put forth and argued on value creation basis since there is available research into the differing values of corporate brands, although analyses of those fall outside the scope of this essay. The sustainability argument revolves around the firm’s consumption of natural resources and interaction with the environment. In their article they maintain that it is best when external sustainability (environmental) and internal sustainability (business) go hand in hand.

Husted manages to tie together the views of those who believe that CSR is a viable approach and those who believe in strategic approach to doing business “To increase a ﬁrm’s competitive advantage, CSR projects must be cost effective and produce a clear return on investment”. Additionally Husted stresses the importance of optimizing, that is, creating as much value as possible at the lowest costs possible.

Porter and Kramer point out that what the current approaches to CSR “focus on the tension between business and society rather than on their interdependence”, in a word they are so integrated that neither could function without the other. They further point out that organizations frequently launch CSR projects independent of strategy loosing out on the opportunities of using their strengths to build competitive advantage or creating shared value. The notion of shared value between the company and society is a key element in Porter and Kramer’s view. Shared value is value created by use of company’s resources that benefits the company, but is also seen as beneficial to society. This approach needs to be totally integrated into the company’s infrastructure to ensure that the company engages in activity that balances the value created to both in order to create long-term harmony. They even go so far as to provide a framework, with good examples, to analyze the prioritization of social issues which breaks issues into; i) generic social issues, ii) value chain social impacts and iii) social dimensions of competitive context. With the latter two putting CSR into a strategic context.

In Porter and Kramer’s view the tighter a social issue is to a company’s business, the more chances are of creating shared value by leveraging the company’s resources.

Final Words

It is noteworthy, that while the economist Milton Friedman denounces the social responsibilities of companies strategists like Michel Porter say there may in fact be ways of using CSR to further the organization’s cause and create value for shareholders. Both believe that the ultimate goal for the company is to create value, but Porter’s point of view seems to open up the possibilities of integrating whatever methods available to the company to create competitive advantage and thereby creating value for shareholders.

Imagine if you will an Airline company who subscribes to this notion, it can fairly easily tie strategic CSR to its business performance by measuring and announcing the added value its CSR efforts deliver. For example, measuring fuel usage per flown mile. This would mean that effort spent on reducing fuel usage has a corresponding value creation in the lowered costs for the airliner. These would fall under the Value chain social impact in Porter and Kramer’s model.

It must be duly noted that due to the limitations of time and the text’s relative length, that the counter arguments against strategic use of CSR were not as actively sought out as an introduction of this type warrants. The best argument, albeit a general one, was found in Hine and Preuss’ article where they point out the fact that the causal relationship between tendency towards CSR and financial performance is equally disputed. It almost is enough to knock the wind out of the whole debate.

I firmly believe there is a case for saying that CSR is an attainable form of ethics in business. But sans evidence that having a CSR policy makes the company more valuable the argument stands on a rather shaky ground. But then it should be noted that there are different degrees of committing to CSR ranging from the occasional gift to charity towards a using CSR as a totally integrated strategic tool to tie CSR to value creation. And, with an admitted lack of hard evidence, I think that the latter provides the company with a more disciplined way to spend its resources.

Hine, J. A. H. S. and Preuss, L. “”Society is Out There, Organisation is in Here: On the Perceptions of Corporate Social Responsibility Held by Different Managerial Groups” Journal of Business Ethics, 2008.